Ethereum’s Shanghai upgrade is complete, and a new era of withdrawals begins

The Shanghai hard fork of Ethereum, also referred to as “Shapella,” has been completed, enabling withdrawals for users who have “pooled” their own ether (ETH) to secure and validate transactions on the blockchain.

Roughly half an hour after the Shanghai upgrade was activated, about 285 withdrawals were processed per epoch, 194,408 operations, for about 5,413 ETH (worth $10 million), according to beaconcha.in.

The long-awaited hard fork — essentially upgrading a blockchain by spinning off a new one — has been described by members of the Ethereum community as a historic milestone, as it completes its multi-year transition to a full-fledged proof-of-stake network.

In a proof-of-stake system, users “subscribe” to cryptocurrency as a form of collateral to help secure and confirm new blocks of data. Last year, the blockchain left behind the original Proof-of-Work consensus mechanism — the same mechanism used by Bitcoin — but so far users have not been able to withdraw accumulated ether or redeem accumulated rewards, which is an important feature of the new model.

The price of ETH remained largely flat at the time the Shanghai hard fork went live, while around 4,000 people tuned in. Chabela Minute Watch Party Hosted by Ethereum Cat Herders.

In the livestream, Ethereum blockchain co-founder Vitalik Buterin said, “We are at a point where the hardest and fastest parts of the transition of the Ethereum protocol are basically over. Very important things still need to be done, but these important things can be done safely and at a slower pace.”

Buterin said that scaling — making transactions faster and cheaper — will be the next problem that blockchain tackles after Shanghai. “If we don’t fix the metric before the next bull run, we know people are going to get stuck paying $500 for transactions. On the other hand, if we don’t have Verkle Trees before the next bull run, well, things could be bad, but you know, it’s A much smaller problem than, you know, $500 transactions, right?”

Digital asset market analysts have speculated for months whether the Shanghai hard fork will be a catalyst for either a price hike or a crash: Will its success boost market sentiment, or will speculators reclaim ETH en masse and rush to dump their holdings?

When Ethereum went through the “merger,” a hard fork that changed its old consensus mechanism from Proof of Work (PoW) to Proof of Stake (PoS), the project introduced a new breed of “validators” to keep the blockchain running. While the PoS consensus mechanism reduced the power consumption of Ethereum by 99%, the developers also believed that under PoS, the network would be more secure and allow for more decentralization.

said Ben Edgington, chief product officer at Teku, a ConsenSys customer for Ethereum. (The client is software that runs the blockchain.) “I think we’ve built a protocol that enables this, and I think it’s a huge step forward from PoW.”

Vitalik Buterin wrote in a blog post in November 2020 that pos It would lead to “a higher concentration of wealth in the long run.”. This is because in PoS, you only need ether to participate and you can get more ether by staking. In PoW, you still earn ether, but you need external resources to do so. So in the long run, Buterin argued, “coin distributions risk By becoming more and more focused.”

To participate in the process of validating the block and securing the Ethereum network, validators are required to “share” at least 32 ETH by sending it to a smart contract where the funds are locked. The more stakes the validator has of ETH, the more likely it will be tasked with proposing a “block” of data transactions to be confirmed on the blockchain. When a validator proposes a block and other validators approve it, that validator gets an additional reward.

When the PoS chain was first launched, 32 ETH was around $15,000. Since then, the value of ETH has skyrocketed, and is now around $58,000. The price gain is one reason for speculation that some investors may choose to sell ETH – to take profits.

Not everyone has that amount of ETH to be able to get the full 32 ETH. So liquid staking providers have become an alternative, where users who want to participate in the staking process can contribute whatever amount of ETH they want, and third party providers will stake the ETH and run the validator on behalf of the customer group.

Lido, the largest liquid storage provider, controls about 23% of all bound ETH. Coinbase, Kraken, and Binance, some of the largest cryptocurrency exchanges in the world, control another 22% of the pegged ETH.

There are many ways validators can opt out, although the two main types of opt out are partial withdrawals and full withdrawals.

Partial withdrawal is when dealers take the rewards they got from the bet but leave the original ether that was frozen. Individual service providers who run their own validators have had to migrate their credentials to pull 0x01 credentials. Without it, partial withdrawals cannot take place automatically.

Partial withdrawal became available when the upgrade started (so there was no need to finish blocks), allowing users to earn long-awaited rewards instantly. However, only Ethereum can be transacted 16 partial withdrawal requests in one slot (which occurs every 12 seconds). Depending on the number of requests that will occur, the queue for withdrawals can take hours.

“Within the first few epochs, there probably won’t be any partial withdrawals, as the first few hundred validators are all 0x00,” said Barnabas Bosa, DevOps Engineer at the Ethereum Foundation. This is because these are the validators from the configuration that joined the network when the beep thread was triggered, and therefore have the old set of pull credentials. (Long-time Ethereum fans may be more interested in continuing to secure the network than cashing in.)

Full withdrawals — in which investors also redeem their original capital — were triggered at the same time, allowing validators to cancel their entire stakes of the 32 ETH and any rewards they collected. By going off-chain, the validator ceases to participate in the block verification process and ceases to contribute to the security of the network.

Full withdrawals do not happen automatically, so validators who want to exit have to send a message to the blockchain to be added to the queue.

Staking services are on their schedules to release restricted ETH withdrawals. Coinbase previously said that they will start processing withdrawal requests for their miners about 24 hours after the Shanghai completion. Lido said that assistants will not be able to refund their withdrawals until the protocol goes through another upgrade in May.

Since the Beacon Chain went live in December 2020, more than 18 million ETH (about 15% of the total ETH supply) has been accumulated. Now that Shanghai is alive, about 1.1 million ETH owed from the rewards are eligible for immediate withdrawal.

Market analysts fear that unlocking ETH deposited on the Beacon Chain could lead to a rush by stock makers to liquidate their tokens.

CoinDesk also mentioned that there may be additional selling pressure from entities facing financial stress. Bankrupt crypto lender Celsius Network could sell its stacked ETH balance of 158,176 ETH, to recover a portion from creditors. Kraken, a US-based cryptocurrency exchange, recently agreed to shut down its staking operations to settle SEC fees, thus potentially having to cancel its holdings of 1.2 million ETH.

Some market analysts believe that the selling pressure of ETH is likely to be distributed over several days given the withdrawal queue, allowing buyers to monitor and analyze the selling pressure.

While stacked ETH withdrawals are the main hub for Shanghai, there are also four smaller mechanisms for Ethereum (known as Ethereum Improvement Proposals, or EIPs) that would improve gas fees for developers.

Update: April 12, 2023: 22:46 UTC: Adds information about the completion of Shanghai Update.

Updated: April 12, 2023: 23:03 UTC: Adds cloud data for the era 194408.

Note: This article will continue to be updated.